The basics of banking

With all the financial jargon and small print, it’s no wonder most people aren’t confident when it comes to understanding the basics of banking. In this guide we’ll cover everything you need to know.

What is the Bank of England?

The Bank of England, sometimes referred to as BoE, is the UKs central bank. You can’t open an account with them yourself because they don’t offer direct services to the public. Instead, they are responsible for maintaining the stability of the UK financial system, and they also look after the design and printing of our bank notes.

You’ll probably hear about the Bank of England in the news quite a lot, and this is because another thing they look after is setting the key interest rate in the economy called Bank Rate, which then filters down into the interest rates offered when you put money into a savings account or take out a loan.

What does the bank of England do?

Besides printing money, the most important role of the Bank of England is to set ‘monetary policy’. What this means in real terms is, they need to try to control inflation to keep the economy stable. The government tasks them to keep inflation below 2%, and their approach to doing this is to control interest rates.

For those who are interested, we go into this in a lot more detail in our Understanding Inflation guide, but to give you a brief overview here, if they set a higher interest rate it would make it more expensive for you to borrow money and encourage you to save – which tends to mean you will spend less. If people on the whole spend less on goods and services, prices will tend to rise more slowly which in turn lowers the rate of inflation.

The opposite is also true. If they set a lower interest rate, it will mean it’s cheaper for you to borrow money, and there’s less of an incentive to save – which usually encourages people to spend more, which over time will increase the rate of inflation.

How to choose who to bank with

Choosing who to bank with should be very carefully considered because it will have a direct impact on the level of service you get, how much interest you earn on your money and how much you have to pay to borrow money. Different banks offer different rates for different products, so to choose who to bank with, you need to think about what banking product you personally need so you can shop around for the best deals out there and make the most of your money.

Because of this, it’s often wise to bank with a few different providers rather than all with one. For example, you could choose to open a savings account with Natwest because they are offering the highest interest rate at the time. But then, in a few months' time when you decide you also want a credit card, you see that HSBC have a 0% interest deal running, and Natwest don’t. So rather than choosing Natwest because you already have an account with them, it would be in your best interest to get the credit card with HSBC because it’ll cost you less overall.

If you're thinking ‘I wouldn’t want different accounts with different banks because it would be hard to manage’, then you’re not alone. A lot of people do find it easier to manage their money when they can see all their accounts in one place, it gives you a better sense of what you’re working with. But luckily, thanks to Open Banking and our app, you now don’t need to choose between getting the best deals on your banking products and seeing your accounts in one place, because you can do both!

If you download our app, you’re able to link as many accounts as you like (even if they are all with different banks) so you can easily see everything in one place and budget accordingly.

What is Open Banking?

Open banking is an initiative led by the Competition and Markets Authority (CMA) to change how banks handle and control your financial information. Under Open Banking, your bank has to share your financial information (this includes balances, transaction history and spending habits) with third parties, so long as you give them permission to do so.

These third parties (like us) will then be able to access your financial information through your bank, building society, loan and credit card providers and compile all your balances and transactions in one place, all with the aim of making managing money easier and more transparent for you - something we’ve always championed.

We hope that the ability to see a single snapshot of your overall financial position in one place and better compare financial products will allow people to get a better understanding of their finances, and it’s Open Banking that makes this possible.

How is Open Banking used?

What does APR mean?

APR is a very common banking term that’s not widely understood. It stands for Annual Percentage Rate and, in the context of debts, refers to a percentage figure of how much you’re likely to pay in fees and interest charges. For example, if you took out a £1,000 loan with an APR of 5% for two years and weren’t making monthly repayments, the total amount you would need to repay at the end of that two years is £1,100. Here's how you work it out:

All lenders must tell you the APR figure before you sign any agreement, however you’ll often see banks advertise debt products with a ‘representative APR’ figure attached, which means that at least 51% of customers will receive this rate. However, a lot of customers will actually be charged more because it is dependent on their personal credit history. For example, if you have a poor credit rating, the actual APR you are offered is likely to be a lot higher, so you could get a nasty surprise at the end of the process when you realise how much you’ll need to pay back.

Get started

Capital at risk

Related articles